The EURUSD currency pair is feeling the impact of a resurgent greenback, fuelled by the ongoing display of strength in the US economy. Just yesterday, the latest labour data revealed a notable drop in initial jobless claims to a level not seen in almost a year and a half, standing at 187,000. This figure missed the 207,000 consensus and marked a decrease from the previous 203,000, indicating a robustness in the US economy beyond expectations.
The US dollar has experienced a rally over the past five consecutive sessions, gaining close to 1% this week as the market adjusted its outlook on potential rate cuts in March. The CME FedWatch Tool, initially signalling an 81% probability of easing in March, has since retreated to 55%.
On the Eurozone front, the inflation report for the week held no surprises, aligning with consensus. However, this did little to counterbalance the greenback’s strength, leaving the EURUSD currency pair under the influence of the US markets.
Technical
On the 4H chart, the bearish pressure initiated a breakdown of the prior uptrend, resulting in a steep selloff. The crossing of the 25-SMA (green line) below the 50-SMA (blue line) confirmed the selling presence, with the 25-SMA now offering resistance to a potential retracement. However, there seems to be divergence on the RSI, signalling the potential for a trend reversal.
Resistance at 1.0882 could act as the first hurdle for the buyers to clear, before which the 25-SMA at 1.0891 poses a threat to the momentum. However, the retracement could kick off if the price clears this level. Resistance at 1.0906 could be next in line for the price to cross if it wants to reach the Fibonacci midpoint, which converges with the 50-SMA at 1.0923.
However, failure to clear 1.0882 could result in a continuation of the initial downtrend. Support at 1.0862 is then all that stands in the way of the currency pair retesting the prior lows of the trend at the neckline support of 1.0845.
Summary
The EURUSD currency pair has been at the mercy of the US Dollar, which has advanced optimistically over the last week. While a retracement of the current selloff is on the cards, the price may first have to clear 1.0882 and 1.0891 to potentially kick off a sustainable bullish reversal.
Sources: Koyfin, Tradingview, CME Group
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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